When Austin Dean started taking classes to earn his various financial advisor certifications, he didn’t fully buy into the curriculum.
It revolved around more traditional financial wisdom, such as “let’s make sure we’re maximizing retirement accounts and deferring taxes in the future,” he told Business Insider.
Dean, who holds ChFC, CLU, CFP, and RICP designations, was interested in achieving financial independence, yet he questioned how he’d get there if most of his money was tied up in retirement accounts, which are inaccessible without penalty until age 59 ½.
It prompted him to analyze how the wealthiest individuals save and invest their money. What he learned was different from what he was learning in the classroom, and ultimately, would shape the philosophy at Waystone Advisors, the registered investment advisor he founded in 2021.
“The most wealthy don’t get there by maximizing their 401(k)s and making coffee at home,” said Dean. “They started businesses, they bought businesses, they invested in real estate, they prioritized cash flow, they became the bank, they had a healthy relationship with using debt as a tool versus a morally good or bad thing, they put money into liquid assets like life insurance and non-retirement investment accounts.”
One of the frameworks that Dean teaches his clients is the “three pillars of wealth design,” which breaks down assets into three main categories: stable assets, market-based assets, and income-producing assets.
There are both traditional and non-traditional ways to approach each asset type. Dean explains why the wealthy tend to favor the non-traditional approach.
Stable assets: The masses put cash in the bank; wealthy people use cash value life insurance
Think of the stable assets category as short-term money. With these funds, you’re typically giving up growth in exchange for security and accessibility. Most people have their stable assets in high-yield savings accounts, money market funds, or CDs.
The non-traditional route would be saving your money in a cash value life insurance policy — meaning, when you pay your premium, a portion of it goes into a separate cash value account that grows tax-free over time and that you can access during your lifetime. The way it grows depends on the type of policy in place. For example, universal life policies act more like the market, Dean explained, while whole life policies act more like a savings account that grows at a guaranteed, consistent rate.
If structured properly, a life insurance policy can essentially act as a better version of a bank account, he said: “Your money’s working a lot harder, and that doesn’t even factor in the default protection that you have a life insurance that protects your family or your business.”
He emphasized that not all insurance companies are created equal and the policy needs to be designed correctly for the individual investor and their goals.
“Life insurance was originally built and intended for the wealthy to be able to grow and pass on money tax favorably, but any financial tool is going to have a variety of levers that can be pulled to do things really well or do things really poorly,” said Dean. “But if you work with somebody who knows what they’re doing and how to craft it, it is one of the more accessible and better ways to diversify your plan.”
Market-based assets: The masses use retirement accounts; wealthy people use SBLOCs
The traditional way of gaining exposure to market-based assets is through retirement plans, such as a 401(k) or IRA. They’re excellent savings vehicles with strong tax benefits, but you typically can’t access your contributions without incurring a 10% fee until you reach age 59 ½. That’s why Dean refers to these accounts as “money jail.”
Another way of investing in the market that gives investors more control and flexibility is through a securities-backed line of credit (SBLOC).
This is a type of loan in which an investor uses their stock portfolio or other assets as collateral. It allows for quick access to cash without having to sell investments and trigger a capital gains tax — and the investor can then pump that cash into other investments, such as starting a business or purchasing real estate.
“Now, your money is doing two things at the same time: It’s in the market, and it’s being used for other wealth-building tools,” said Dean.
The main risk is pulling out too much money, and the stock market crashes, he explained: “We recommend always leaving a buffer between what you are approved for and what is being used. I also recommend having other liquid assets or lines of credit in reserve, in case the market takes an unexpected swing.”
Income-producing assets: The masses rely on Social Security; wealthy people invest in real estate
The income-producing asset bucket includes Social Security, pensions, and annuities. Like retirement accounts, they don’t allow for complete flexibility and control.
“Social Security, you can’t touch it until 62, at least, but typically 67 or later at this point,” said Dean. “Pensions tend to be similar because of age restrictions, and annuities tend to have very similar restrictions to retirement accounts in terms of accessibility and penalties.”
The wealthy prefer to generate passive, recurring income by investing in real estate.
Investing in real estate comes in all shapes and sizes. You can buy and offer short-term or long-term rentals and start bringing in rental income; you can invest in real estate syndications, a hands-off strategy that can produce good returns if you work with an experienced syndicator; or you can do private lending, act as the bank for real estate investors, and earn double-digit interest.
Dean understands that non-traditional planning isn’t for everyone, but wants investors to understand all of their options — and know that wealthy people are doing things differently.
Before making any changes to your investment strategy, it’s essential to outline your financial goals.
After all, “if your goal is to have a bunch of money in retirement accounts at 60 or 65, then keep doing that,” he said. But, if you’re aiming for financial independence or early retirement and don’t want to wait until your 60s to access the bulk of your savings, “we have to look at: What are the assets that allow us not to have to wait?”
